The period between 2017-2019 marked a time of turbulence for the Australian property market. The Hayne Royal Commission and the corresponding restricted flow of finance to both home buyers and investors alike resulted in the fall of property prices across most of Australia. The Sydney and Melbourne property markets experienced the worst of this downturn, with both posting double-digit price decreased throughout this time. However, out of this situation a number of mitigating factors emerged.
- RBA cash rate cuts to a low of 0.75% in 20191 resulted in lower mortgage rates
- the fall in housing prices created new levels of housing affordability and investment opportunity; and
- greater confidence in property taxation policy was experienced following the 2019 federal election.2
Throughout this time, Australia still experienced strong population growth and continued government investment in infrastructure. After a period of lows and uncertainty, the combination of these factors have assisted in a recent upturn in Australian property prices, with the final quarter of 2019 posting the highest quarterly jump in national house prices for the past decade (National average, 4%, Sydney 6.2%, Melbourne 6.1%, Hobart 3.4%, Brisbane 2.4%, Canberra 2.3%, Adelaide 1.4%, Perth -0.1, Darwin -1.4).3 Renewed confidence and access to the property market is leading to predictions of a nominal recovery by March 2020, followed by continued strong growth.4
In the falling, and subsequently, recovering property market that Australia has been experiencing, a number of trends have emerged, reflecting in which areas investors are feeling the most confident. PWG has analysed a few.
Continued demand for commercial property
According to CBRE data, commercial real estate deals reached record high’s for two financial years in a row, with FY 2019 totalling $38.6 billion worth of transactions (a $900m increase over FY 18).5 A dominant factor in this was the sale of office spaces, which has be spurred by record low vacancy rates across Melbourne (3.2%) and Sydney (4.1%).6 Further, renewed interest in the hotel sector was seen between FY 18 and 19, marking a 20% increase in the number of transactions over the year.7 Investors showed diminished interest in the industrial and retail sector, with a contraction of 16% and 25% respectively in transactions.8
Interest in apartment blocks and units
2019 saw apartment blocks become an increasingly popular investment across Melbourne and Sydney. Demand was particularly strong for dated apartment blocks with redevelopment or renovation potential.9 Rationales for these types of investments may stem from a predicted undersupply in residential housing. According to CBA , Australia may be facing an undersupply of housing as early as late 2020 due to falling development approval rates (down 11.8% nation-wide over November 2018 – November 2019), and strong population growth (up 381,000 people between June 2018 – June 2019).10 As such, investments such as these are suitable for both short term build/ renovate and sell, and buy and hold strategies.
Demand for regional property over metropolitan
According to property market research firm, Propertyology, over the past three years Australia’s regional towns have recorded some impressive growths. The best preforming regional areas over this period include Glenorchy, TAS (40%), Bass Coast, VIC (37%), Macedon Ranges, VIC (35%), Snowy Monaro, NSW (34%), Baw Baw, VIC (30%) and Geelong, VIC (29%).11 Regional towns appear to be offering exciting new investment opportunities when compared to metropolitan areas such as Sydney, Melbourne and Brisbane which posted respectively average growth over the same period of 2.4%, 12.8% and 8.3%. Large drivers of this growth include housing affordability and job availability, resulting in larger levels of migration to these regions.12